TaxTMI 
TaxTMI 
2023 (1) TMI 1112
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.... forward of short term capital gain of Rs.545,37,91,785/- and long term capital gain of Rs.11,62,361/-. Reiterating the submissions made before the Dispute Resolution Panel(DRP), the ld. Authorized Representative of the assessee submitted that during the period relevant to the assessment year under appeal, the assessee had earned dividend income amounting to Rs.3,37,04,020/- in respect of shares represented by Indian Depository Receipts(IDR) issued by Standard Chartered Bank Plc. (SC Plc) incorporated in United Kingdom. The said IDRs are listed on Stock Exchange in India. The dividend has been received by overseas custodian bank in UK and ultimately remitted to all IDR holders (including assessee). An IDR has been recognized as a security to facilitate trading thereof on the Indian Stock Exchange. The dividend that an IDR holder receives, is in fact a dividend on the shares of SC Plc ( a foreign company). Thus, the dividend cannot be regarded as income from the IDR. 2.1 The ld. Authorized Representative for the assessee dividend on equity shares was declared by SC Plc UK and distributed to the Overseas Custodian bank in the bank account (in foreign currency) of the Domestic Deposi....
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....ntal Representative submitted that transaction is covered by DTAA Article -10. Hence, the assessee is eligible for concessional rate of tax @15% under Article -10. The ld.Departmental Representative referring to Article -10 of the treaty submitted that expression "Resident" should be considered as defined in the treaty and not as per the Act, if reliance is to be placed on DTAA. The ld.Departmental Representative further contended that the assessee has received dividend from Indian entity and the dividend had accrued/ paid to the assessee in India. 4. Rebutting the contentions raised on behalf of the Revenue the ld. Authorized Representative of the assessee submitted that the Tribunal in the case of Morgan Stanley Mauritius Co Ltd vs. DCIT (supra) in para -11 of the order has examined the applicability of Article -10 of the India - Mauritius tax treaty and concluded that provisions of Article-10 are not attracted in the present transaction. 5. We have heard the submissions made by rival sides and have examined the orders of authorities below. We have also considered the decision on which the ld. Authorized Representative of the assessee has placed reliance. The key features of ID....
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....a - Mauritius DTAA rejected assessee's contention, that the dividend on IDR is taxable in Mauritius. It is an undisputed fact that the dividend on IDR has been received in India. The DRP and the Assessing Officer however, accepted alternate claim of the assessee to the extent that the assessee will get the benefit of India Mauritius tax treaty, however, the benefit of tax treaty shall be eligible to the asssessee as per clause 2(b) of Article -10 and hence, the dividend is eligible to be taxed @15%. 6. We find that in the case of Morgan Stanley Mauritius Co Ltd vs. DCIT (supra), the Co-ordinate Bench examined identical transaction threadbare. All the participants in IDR facility are identical except the IDR holders. The holder of IDR in present case is assessee instead of Morgan Stanley Mauritius Co. Ltd. The Tribunal held that in so far as the fact that dividend income is received by assessee in India is not in dispute, hence, the findings of authorities below cannot be faulted in holding that the money is received by the assessee therein from Indian Depository in respect of dividend paid by Standard Chartered Bank Plc UK is taxable in India, hence, the findings of the authoritie....
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....The question of taxability of these dividends was in the hands of the persons who had no other connection, except the underlying asset of the related companies in India, and such a situation is materially different in the sense that here is a domestic depository that holds the IDRs with underlying assets abroad, the IDRs are listed in India as a derivative financial instrument, and the central point of the investment-related activity is in India. Such a situation cannot be compared with a direct shareholding in a foreign company, who has no other business connection in India except for what may be perceived to be covered by extended scope of Explanation 5 to Section 9(1)(i) and which remains confined to the company in question holding underlying assets in India. In fact, the present case is diametrically opposed to the fact situation that the CBDT intended to cover. Here is a case in which IDRs are in India with underlying shares, from which an IDR derives the value, are situated abroad, and, in any event, IDR holder is not simply a shareholder. He is entitled to the benefits of the shareholding but the derivate securities yielding him these benefits is in India, though these deriv....
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.... The dividend declared by the Indian depository could be, and is indeed is, on the basis of the dividend declared by the SCB-UK but then what the assessee is entitled to are the benefits flowing from the shareholdings in SCB-UK as an underlying asset of the IDRs. What is rightfully due to the assessee in income character is the net amount received from the Indian depository and not the dividend simplictor as declared by the SCB-UK. The income, therefore, accrues to the IDR holder at the point of time when the Indian depository works out the amount payable to IDR holders and then pays it accordingly. Viewed thus, the point of time when income accrues to the IDR holder is when the Indian depository declares the outgo and is received when the Indian depository pays the money. In such a situation, so far as the IDR holder is concerned, the amount in question is received in India in reality and in law. There is one more argument of the assessee that is required to be dealt with. Learned counsel has repeatedly highlighted the position that the Indian depository is a "bare trustee in the English law and a tenant in common in respect of the shares represented by the IDRs held by the IDR ho....
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....r in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD. None of these items have anything to do with any situation other than a situation becoming relevant for an employee, which is not the case. All that this provision deals with is as to when the income is deemed to be received, even though there is no actual receipt in the relevant previous year, and not with whether an income is deemed to be received by, or on behalf of, such a personreferring to a nonresident. If the interpretation canvassed by the learned counsel is to be accepted, section 5(2)(a) will become meaningless, so far as deeming fiction of receipt is concerned, for persons other than the individuals holding salaried employments in in India but then, because of their presence on account of employment, such persons will be residents in India under section 6(1)(a) anyway. That is an incongruous position. The law is being interpreted in a manner so as to make it redundant. It is only elementary that law is to be interpreted in a manner so as to make it workable rather than redundant (ut res magis valeat quam pereat) and any interpretation leading to absurdities is to b....
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....l apply to persons who are residents of one or both of the Contracting States". Article 4(1) of Indo-Mauritius tax treaty defines resident of a Contracting State by providing that "(f)or the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of similar nature". There is no dispute that the assessee before us is a company incorporated in, and fiscally domiciled in, Mauritius. The Tax Residency Certificate filed by the assessee company is placed on record. The treaty entitlement of the assessee is not in doubt. What the treaty protects is, in terms of the provisions of Article 2 is, so far as India is concerned, "the existing taxes to which this Convention shall apply are: (a) in the case of India,-(i) the income-tax including any surcharge thereon imposed under the Income-tax Act, 1961 (43 of 1961) ; (ii)the surtax imposed under the Companies (Profits) Surtax Act, 1964 (7 of 1964)". It is thus the fact of these tax levies in India which are sought to be protected by the treaty. As to who made the payme....
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....aty under which this dividend income can be taxed. That carries it to the residuary head, i.e., Article 22, which provides as follows: ARTICLE 22- OTHER INCOME 1. Subject to the provisions of paragraph (2) of this article, items of income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in the foregoing articles of this Convention, shall be taxable only in that Contracting State. 2. The provisions of paragraph (1) shall not apply to income, other than income from immovable property as defined in paragraph (2) of article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of article 7 or article 14, as the case may be, shall apply. *(3) Notwithstanding the provisions of paragraphs 1 and 2, items of income of a resident of a Contracting State no....